Tax Cat here! Calling it a “game changing event for the tax system”, the IRS announced in a press conference call, that they invited me, a tax cat, to that they’re launching 6 sweeping regulatory reforms to clean up the paid tax prep industry. The IRS is not naming names but I’m growling at you, H&R Block and Jackson Hewitt. Numero uno:
1. Mandatory tax return prep registration
All paid preparers signing returns must register and get a “PTIN” (prepare tax identification number) that must be renewed every 3 years.
2. Competency testing
All paid preparers must pass three tax return tests to make sure they know what they’re doing.
3. Education requirements
Paid preps must attend annual continuing professional education to keep their professional status.
4. Ethical standards
All paid preps must sign and comply with ethical statements in Treasury circular 230 or be subject to discipline.
5. A public database
The creation of a publicly searchable database so consumers can make sure their preparers have taken the right tests and is registered.
6. Tax return prep enforcement
Increasing staff and resources to crack down on n’er-do-wells.
These steps will take time to implement, they won’t be in place by this year’s tax season, but the IRS said what you can do immediately is to beware paid prepares who
* Advertise themselves by saying they can get you bigger refunds.
* Base their fees on a percentage of the refund they get you.
* Will not be around when you need them.
* Won’t sign your return.
To step up enforcement this year, the IRS is sending agents, some announcing themselves, some undercover, to visit paid preparers to make sure they are giving “good and sound and ethical advice.”
The IRS is also sending letters to 10,000 paid prepares across the country who typically have “large volumes of specific types of tax returns where the IRS sees errors.” These errors include problems with Schedule C, Schedule A, the earned income tax credit, and the first time homebuyer’s credit. The last two have been particular sources of mistakes and fraud lately, the IRS said.
The agency will also be launching task forces to study how tax prep software influences the process, and to investigate the refund settlement product industry.
Of the need to introduce more oversight, IRS Commissioner Doug Shulman said, “In most states you need a license to cut someone’s hair but you don’t have anything for one of the largest financial transactions of the year.”